IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v27y2021i12p1164-1185.html
   My bibliography  Save this article

Can strong capital regulation prevent risk-taking from deposit insurance?

Author

Listed:
  • Jan Bartholdy
  • Lene Gilje Justesen

Abstract

Can strong capital regulation prevent risk-taking from deposit insurance? Denmark offers a unique setting providing solid identification for testing risk incentives from deposit insurance under strong capital regulation. The Danish system is a universal system without strong risk exposure regulation. Commercial banks and savings banks have different ownership structures but are subject to the same set of regulations, but savings banks have no incentive to increase risk after the implementation of a deposit insurance scheme. We show that commercial banks did not increase their risk at the introduction of deposit insurance compared to savings banks. We attribute this to strong capital requirements and a firm closure policy. The results also hold for large commercial banks, indicating that the systemic risk did not increase either. Finally, there is no evidence that commercial banks increase their risk by allowing their customers to increase their leverage (risk) compared with customers in savings banks.

Suggested Citation

  • Jan Bartholdy & Lene Gilje Justesen, 2021. "Can strong capital regulation prevent risk-taking from deposit insurance?," The European Journal of Finance, Taylor & Francis Journals, vol. 27(12), pages 1164-1185, August.
    • Handle: RePEc:taf:eurjfi:v:27:y:2021:i:12:p:1164-1185
    DOI: 10.1080/1351847X.2020.1860107
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1351847X.2020.1860107
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1351847X.2020.1860107?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:27:y:2021:i:12:p:1164-1185. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REJF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.